It’s possible to save a business in bankruptcy. However, you first need to thoroughly assess whether the business is worth saving. Generally, you should think about saving a business when you are confident the business can turn a profit and its assets are worth more than its debts. You also will need to decide which bankruptcy chapter to file under. Depending on your business, you can choose from three options—Chapter 7, 11, or 13. After considering the unique features of each, you can file for bankruptcy by completing the correct forms. The bankruptcy process is designed to be fairly pain-free. However, some chapters—such as Chapter 11—are more complicated than others. Regardless of which chapter you file under, you would benefit from hiring a bankruptcy lawyer to handle the case.

Identify why the business is losing money. Before deciding to go through with a bankruptcy, you need to try and identify why the business isn’t profitable. For example, consider the following:

The business has hit a rough patch which is temporary. For example, your business might have been affected by unseasonable weather or the loss of a key employee. If you are confident these conditions won’t occur again, then a bankruptcy might make sense.

The business is consistently losing money. If you’ve never seen a profit, then you should assess whether the business will ever be profitable.[1]XResearch source There is no reason to save a business if it can’t make a profit.

Calculate the total value of your assets. You also need to compare your business assets to your business liabilities. Begin by compiling a list of business assets and assign a dollar value. Common business assets include the following:[2]XResearch source

Assess your debts. To compare your assets to your debts, you should add up every debt that your business has. Be thorough. Go through your records so that you can identify all debts, which includes not only loans but also unpaid suppliers.

If the assets are more than the debts, then the business may be worth saving. However, you should think about abandoning the business if the debts exceed the value of your assets.[3]XResearch source

Identify any debts you are personally liable for. When you are personally liable for a debt, the creditor can go after your personal assets to satisfy the debt. In this situation, you might want to save the business in bankruptcy. If you don’t, then you leave your creditors with no choice but to pursue your personal assets because the business has been closed down.[4]XResearch source

You can find out if you are personally liable for the debts by looking at the loan documents. Did you sign personally?

You may also be personally responsible for debts if you run a sole proprietorship or a partnership.

Identify the relevant types of bankruptcy. There are generally three bankruptcy chapters that you could potentially file under to save your business. Each is different, and you need to understand those differences:[5]XResearch source

Chapter 7. This bankruptcy can help save your business only if it is a sole proprietorship. You are personally responsible for the debts of your sole proprietorship, so taking a personal Chapter 7 can wipe out all business debts while exempting certain property. However, you don’t want to choose a business Chapter 7. If you did, then your entire business will be “liquidated,” meaning it is sold off to pay your business debts.

Chapter 13. This bankruptcy is only for individuals. Accordingly, only sole proprietors can file. In a Chapter 13, you come up with a repayment plan that lasts three to five years. You can include your business debts from a sole proprietorship. At the end of the repayment period, any unsecured debts (like credit cards) will be discharged.

Chapter 11. This bankruptcy allows you to reorganize business debts while continuing to stay in business. It is more complicated than a Chapter 7 or 13. You definitely need a lawyer to help you file for a Chapter 11.

Choose between Chapters 7 and 13 if you are a sole proprietor. Sole proprietors can pick between these two bankruptcy chapters. You will need to analyze different factors, including how much of your sole proprietorship property you can exempt.

The bankruptcy code allows individuals to exempt certain property, which means the trustee overseeing your bankruptcy can’t sell it to pay your creditors. Each state has a list of exemptions, which you should read. In some states, you can choose to use the state exemptions or a list of federal exemptions.[7]XResearch source

For example, some states will let you exempt $5,000 in a vehicle. If your vehicle is worth less than $5,000, the trustee can’t sell the vehicle.

States also might have exemptions for your primary residence as well as “wildcard” exemptions, which you can apply to any property.

If you can exempt all of your property in a Chapter 7, then you might take a Chapter 7 personal bankruptcy to wipe out the debts associated with your sole proprietorship. However, if you can’t exempt all of your property, then you would be better off taking a Chapter 13.

Meet with a bankruptcy attorney. A qualified bankruptcy attorney can also help you decide which chapter to file under and can answer any questions that you have. You can get a referral to a bankruptcy attorney by contacting your local or state bar association.

You should also seriously consider hiring the bankruptcy attorney to represent you in a Chapter 7 or 13. People are much less successful getting their bankruptcy approved when they file on their own.

In a Chapter 11, you must hire a lawyer if you are a corporation or partnership.[8]XResearch source

At your consultation, you should ask how much the attorney charges to handle the entire bankruptcy. If your bankruptcy is fairly simple, the attorney might offer a flat fee, such as $500-3,500 for a Chapter 7 or $2,500-6,000 for a Chapter 13.

Check if you qualify for bankruptcy. Each bankruptcy chapter has certain requirements that you must meet. You should talk about these with your lawyer. You can’t file under a chapter if you don’t satisfy the requirements.

For example, in order to file for a Chapter 13 bankruptcy, you cannot owe more than $383,175 in unsecured debt or more than $1,149,525 in secured debt.[9]XResearch source If you do, then you probably need to file a Chapter 11 bankruptcy in order to save your business.

If you file for Chapter 11, you might be able to file as a “small business” if you have less than $2,490,925 in debt. By filing as a small business, you will have a shorter deadline for submitting your plan for reorganization. You also won’t have to deal with a “creditors committee,” which is a group of your unsecured creditors who can try to negotiate with you or ultimately challenge your proposed reorganization.

Take a pre-filing credit counseling class. Before you can file for bankruptcy, you must take a credit counseling class from an approved vendor. You will then file the certificate of completion when you file for bankruptcy.[10]XTrustworthy SourceUnited States CourtsOfficial website for the U.S. court systemGo to source

Complete a petition and schedules. The bankruptcy process is fairly streamlined. There are printed, fill-in-the-blank forms you will need to complete in order to file. You can pick them up from your nearest bankruptcy court. Use the court locator at http://www.uscourts.gov/court-locator to find the nearest bankruptcy court.

You will need to complete a “petition” as well as different “schedules.”[11]XTrustworthy SourceUnited States CourtsOfficial website for the U.S. court systemGo to source There should be schedules for you to list your current assets and debts, income and expenditures, as well as contracts and leases.

Create other documents, depending on your bankruptcy. Chapter 11 and Chapter 13 bankruptcies require more paperwork than a Chapter 7. You need to prepare extra documents and file them with a court, meeting all deadlines set by the judge or the bankruptcy code. For example, you will probably have to create the following:

Create a repayment plan. If you file for a Chapter 13 bankruptcy, then you will need to create a repayment plan. The plan will identify how you will pay off your creditors over three to five years. The credit counselor you meet with before filing can help you create this document.

Draft a disclosure statement. In a Chapter 11 case, you may need to draft a disclosure statement, which contains detailed information about your assets, liabilities, and business affairs. If you are a small business, then you might not need to draft this.[12]XTrustworthy SourceUnited States CourtsOfficial website for the U.S. court systemGo to source

Create a plan of reorganization. In a Chapter 11, you also need to classify all of the creditor claims according to the bankruptcy code and then identify how you will treat each class. This is similar to a Chapter 13 repayment plan. Your lawyer can help you draft this document.

File the forms. Make multiple copies of all forms and take the copies and the original to the court clerk. Ask to file. The clerk can stamp your copies with the filing date. You must pay a filing fee, which will differ depending on which chapter you file under.

The clerk will notify the creditors listed on your schedule that you have filed for bankruptcy. Once they are notified, they are prohibited from contacting you again about the debts you owe. This is called the “automatic stay.”[13]XResearch source

Write down the names and telephone numbers of any creditors who contact you after you file for bankruptcy. You might be able to sue them for violating the automatic stay.

Attend your 341 Meeting of Creditors. All debtors must attend a meeting of creditors after they file for bankruptcy. It is run by the trustee, and your creditors may attend. The purpose of the meeting is to make sure that you have listed all of your assets and, if you filed a Chapter 13, whether you can make payments under your proposed plan.[14]XResearch source

Your creditors can ask questions. For example, if you have a secured loan, then the creditor might ask if you want to reaffirm the loan or hand over the collateral.

Remember to update your petition. After you file, you have a continuing obligation to update your petition and schedules if any of the information changes. For example, your business income might have suddenly increased or decreased. You can update by getting the forms from the court clerk and notifying the trustee and any affected creditors of the change.

You also must correct errors if you made them. For example, you could have accidentally forgotten to list a creditor or an asset when you originally filed.[15]XResearch source You should correct all mistakes as soon as you discover them.

Handle adversary proceedings. In bankruptcies involving large companies, there might be many adversary proceedings. The judge will decide these disputes, usually before approving your petition. Accordingly, you and your lawyer might have to handle the following in a typical Chapter 11 bankruptcy:

Actions to avoid preferential transfers. The bankruptcy code prohibits you from favoring certain creditors over others. For example, if you made a large payment to a creditor right before filing for bankruptcy, you might have to sue the creditor to get the money back. A creditor’s committee or the trustee can also bring these actions.

Actions to avoid post-petition transfers. You might have made a transfer after filing for bankruptcy which your creditors want to challenge.

Objection to proof of claims. A creditor can make a claim after you file for bankruptcy. This claim will probably be for an amount greater than what you listed as a debt on your schedules. You or the trustee can object to the claim. The judge must decide whether the claim is valid at a hearing.

Send impaired creditors your plan of reorganization. In a Chapter 11, you must send your plan of reorganization to every creditor who is “impaired,” which means they will be negatively affected by your plan, usually by receiving less than 100% of what they are owed. The creditors can then vote on whether to accept the plan.

If at least 50% of the number of impaired creditors approve, then that class of creditors has accepted the plan, provided their claims total at least two-thirds of the dollar amount of the class.[16]XResearch source

Take a debtor education course. In a Chapter 7 or 13 bankruptcy, you must take a debtor education course before you can receive a discharge. You must take it any day before the discharge. You can take the course in person, through the mail, or online.[17]XResearch source

The U.S. Trustee Office has a list of approved vendors at its website.

Have your plan confirmed by a judge. Your bankruptcy can only be confirmed by a judge. Accordingly, you may have to go into court to answer the judge’s questions. The experience will be different, depending on the bankruptcy chapter you file.

If you file a Chapter 7, then you do not have to attend a confirmation hearing.

In a Chapter 13, the judge will analyze your repayment plan to make sure it complies with the bankruptcy law. If either the trustee or a creditor objected to the proposed plan, then the judge will hear argument. If there is no objection, then your confirmation hearing could take 5-15 minutes.

At a Chapter 11 confirmation, the judge will review the voting of impaired creditors. Even if a group of impaired creditors rejects the plan, the judge can force them to accept it if you can convince the judge that the plan is fair.[18]XResearch source

Report on implementing your plan. In a Chapter 11, you still must stay in contact with the judge, even after the judge confirms your plan. Typically, you must report your progress in implementing the plan of reorganization.

You might also continue to fight adversary disputes even after plan confirmation.

Receive a discharge. Your debts are not wiped out until they are “discharged.” In a Chapter 7, you will receive a discharge as soon as the trustee approves your plan and the judge reviews it.

In a Chapter 13, you must make payments according to your repayment plan. Any unpaid debts will only be discharged at the end of your three- to five-year repayment period. If you miss a payment during this time, then quickly contact a lawyer. You might be able to modify your repayment plan and get a judge to approve the new plan.

In a Chapter 11, the confirmation typically discharges all pre-petition debts.[19]XTrustworthy SourceUnited States CourtsOfficial website for the U.S. court systemGo to source However, as mentioned above, you may still have to wait for a judge to decide adversary proceedings.